Analysis: Supply-chain pain: S.Korea chipmakers and their suppliers seek to bypass Tokyo curbs
08/07/2019 13:28
* S.Korean chipmakers seek supplies from outside Japan
* Overseas units of Japan suppliers believed exempt from
controls
* Japan dominates supply of the three materials
By Ju-min Park and Makiko Yamazaki
SEOUL/TOKYO, July 8 (Reuters) - South Korean chipmakers and
Japanese chemical suppliers caught in the midst of a sudden
escalation of a bilateral diplomatic dispute are scrambling to
circumvent tightened export controls imposed by Tokyo, industry
executives said.
Japan said last week it would stop preferential treatment
for shipments of the three materials to South Korea, requiring
exporters to gain permission each time they want to ship, which
takes around 90 days.
The curbs apply to three materials where Japan is dominant:
photoresists, used to transfer circuit patterns onto
semiconductor wafers; hydrogen fluoride, used as an etching gas
in the chipmaking process and fluorinated polyimides, used in
smartphone displays.
Samsung Electronics Co Ltd 005930.KS and SK Hynix
000660.KS are seeking to buy more of the materials from
countries like Taiwan or China, said Park Jea-gun, head of the
Korean Society of Semiconductor & Display Technology.
That includes sounding out companies in countries other than
Japan which may have surplus stock of the materials, he added.
Kim Young-woo, an analyst at SK Securities, said the
chipmakers have already dispatched sales teams to factories or
joint ventures operated by the suppliers outside of Japan to
secure stock.
Samsung has said it is reviewing a number of measures to
minimise an impact from the curbs. Its vice chairman Jay Y. Lee,
heir to the parent conglomerate, travelled to Tokyo on Sunday,
according to a Samsung official, who declined to provide further
details on what measures the tech giant was taking.
SK Hynix declined comment.
Though it remains unclear exactly how far Tokyo could slow
the export approval process or if it will shift towards a ban,
South Korean chipmakers are worried the situation could develop
into a full-blown crisis.
"These materials, they are not something that we can find at
another store and buy quickly," said a source at one South
Korean chipmaker, declining to be identified due to the
sensitivity of the matter.
"Even if we find alternatives to Japan, we have to conduct
tests to make sure the quality is good enough to make chips at a
high yield."
Stockpiling is not regarded as a viable option for two of
the materials. Hydrogen flouride is highly toxic while
photoresists deteriorate quickly.
South Korean chipmakers rely on Japan for most of the
materials, although they source some hydrogen flouride from
China. They have up to four months of stockpiles for some of the
materials, experts say.
SUPPLIERS' EFFORTS
The dispute stems from Tokyo's frustration with what it
calls a lack of action by Seoul over a South Korean court ruling
last October that ordered Nippon Steel 5401.T to compensate
former forced labourers.
The neighbours share a bitter history dating to Japan's
colonisation of the Korean peninsula from 1910 to 1945, which
saw forced use of labour by Japanese companies and the use of
comfort women, a euphemism for girls and women, many of them
Korean, forced to work in its wartime brothels.
Japan says the issue of forced labour was fully settled in
1965 when the two countries restored diplomatic ties.
The row also shows no signs of abating, with Tokyo
threatening last week to remove Seoul from a "white list" of
countries with minimum trade restrictions that could result in
curbs on a broader range of items applicable to weapons
production.
Among the Japanese suppliers, JSR Corp 4185.T believes it
could supply some photoresists from its Belgian plant, a company
spokesman said.
Tokyo Ohka Kogyo Co Ltd 4186.T has a plant in South Korea
and can supply photoresists to Korean clients "for the time
being", a spokesman said. But the plant has to source some
materials from Japan to produce photoresists, so the export
curbs will slow supplies once current inventories are gone.
Stella Chemifa Corp 4109.T has a joint venture plant in
South Korea which can ship hydrogen fluoride to Korean clients,
but it declined to comment on how much of its clients' needs the
joint venture plant could fulfil. The company estimates it
controls up to 70% of the market for high-purity hydrogen
fluoride.
Japan produces about 90% of fluorinated polyimide, Japanese
media have said. It produces around 90% of photoresists,
according to a government report.
South Korea imported $144 million of the three materials
from Japan in the first five months of this year, Korean
industry data showed.
The curbs on photoresists only apply to those used in
producing chips based on an advanced technique known as extreme
ultraviolet or EUV lithography. But that could hobble Samsung's
efforts to use the technology to catch up with rival Taiwan
Semiconductor Manufacturing Co Ltd 2330.TW , analysts say.
South Korea has plans to invest in its domestic industry to
develop the materials on its own but there are no easy
alternatives to Japanese supply in the near-term.
"For these tech materials, you need to accumulate know-how
in selecting raw materials, combining them in an appropriate
mix, controlling temperature and so on," Nomura analyst Shigeki
Ozaki said.
"Most of the know-how is hidden in a black box."
(Reporting by Makiko Yamazaki and Ju-min Park; Additional
reporting by Heekyong Yang; Writing by David Dolan; Editing by
Edwina Gibbs)
((david.dolan@tr.com; +81 3 6441 1526; Reuters Messaging:
david.dolan.thomsonreuters.com@reuters.net))